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Executives

Paul Malcolmson – Director, IR and Government Relations

Tom Kloet – CEO

Michael Ptasznik – CFO

Analysts

John Reucassel – BMO Capital Markets

Graham Riding [ph] – TD Newcrest

Shubha Khan – National Bank Financial

Geoff Kwan – RBC Capital Markets

Ed Ditmire – Macquarie

Jeff Fenwick – Cormark Securities

TMX Group Inc. (OTC:TMXGF) Q2 2010 Earnings Call Transcript July 28, 2010 8:00 AM ET

Operator

Good morning. My name is Shannon, and I will be your conference operator today. At this time, I would like to welcome everyone to the TMX Group Q2 2010 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator Instructions). Thank you.

I would now like to turn the call over to Paul Malcolmson, Director of Investor and Government Relations. Paul, you may begin.

Paul Malcolmson

Thank you, Shannon; and good morning. Thank you, everyone, for joining us this morning for the second quarter 2010 conference call for TMX Group. As you know, we announced our second quarter 2010 results this morning. A copy of the press release is available on our website tmx.com under Investor Relations. Today, we have with us Tom Kloet, our Chief Executive Officer; and Michael Ptasznik, our Chief Financial Officer. Following the opening remarks from Tom and Michael, we will have a question and answer session.

Before we begin, I want to remind you that certain statements made on the call today may be considered forward-looking, and I would refer you to the Risk Factors outlined in today's press release and reports filed by TMX Group with regulatory authorities. In addition, we may discuss certain financial measures that may include adjustments to our earnings per share, issuer services build, initial listings fees build, and additional listings fees build, that do not have standardized meanings prescribed by Canadian GAAP. These measures, therefore, are unlikely to be comparable to similar measures that are presented by other issuers.

And now, I would like to turn the call over to Tom.

Tom Kloet

Thank you, Paul; and good morning, everyone. Thank you for joining us to discuss TMX Group's second quarter performance. Michael will walk you through our financial results in detail in a moment, but first, I would like to take a few minutes to review our operational results, as well as our business initiatives and activities.

It was an eventful quarter for TMX Group. It is perhaps an understatement to say that it was an eventful period for the capital markets and for the country. Most impactful were the flash crash in the US, and the G8 and G20 summits held here in Canada. But it certainly isn't often that Toronto experiences an earthquake, riots in the streets, and a flood, all in one week. But I do want to note the work done by the TMX Group teams, who ensured the uninterrupted operation of our markets, including price discovery and capital formation throughout this period.

I will take a few moments to share my thoughts on the flash crash first. Simply put, the events of May 6 were a wake-up call. The extreme inexplicable market volatility on that day harmed issuers and investors and it revealed very serious systematic flaws and weaknesses. There is the general consensus is that a fragmented marketplace with multiple trading venues working under very different rules was an important factor, and that these disparate and uncoordinated rules are not understood by many investors, or listed companies. While the flash crash was in the US, regulators around the world have taken note, and are proactively working to ensure similar events do not occur elsewhere.

TMX Group welcomes and strongly supports the Canadian regulators' review of both the May 6 market event, and the broader regulatory and policy issues it raised. We stand prepared to assist in any way, and to share our insight as steps are taken to fix the problems that were exposed by market activity on that day. In fact, we have been participating in a marketplace committee that has been working to provide input to the CSA on issues like single stock circuit breakers. This is encouraging, because by demonstrating the common will to eliminate the flaws, and sure up those weaknesses going forward, we will strengthen the Canadian capital markets.

The quarter's other impactful event was the G8 and G20 summits. While it was massively inconvenient for Toronto's heavily populated financial district, hosting the G8 and G20 summits provided Canada with a great opportunity to showcase the unique attributes of the Canadian marketplace to the world. The exposure was helpful for TMX Group, because it was well aligned with our efforts to promote the Canadian marketplace as a listing and trading venue internationally. Canada's economy weathered the economic storms of 2008 and 2009 relatively well, and the summit gave the country a chance to demonstrate needed leadership on a global scale. While much of the outcome of this meeting cannot be measured in immediate economic terms, we believe the visibility will ultimately help the Canadian economy.

There have been signs of renewed economic activity in Canada, including signs that Canada is experiencing a more robust recovery than many parts of the world. Canada's GDP rose 6.1% in the first quarter of 2010. Since then, the rate of growth has slowed somewhat, but Canada's growth is expected to outpace other G8 economies for some time. The Bank of Canada recently bumped up essential rate, and there were other encouraging economic indicators, for example, lower unemployment numbers at the end of the second quarter.

The positive economic news certainly contributed to our operating results for the second quarter of 2010. Equity financing on our markets continued to be very strong. The Toronto Stock Exchange welcomed 45 new issuers to the markets during the second quarter, 28 of which were initial public offerings. On a year-to-date basis, there were 94 new listings on TSX, which outpaced the same period in 2009 by more than 150%. The story is similarly positive on TSX Venture Exchange. Our junior board welcomed 43 new issuers during the quarter, and 81 new issuers on a year-to-date basis. That is an 84% improvement for the first six months of 2009. As you know, TSX Venture Exchange and the Toronto Stock Exchange provide a unique platform for growth for emerging companies. A key measure of success for us is the number of companies that graduate from the TSX Venture Exchange to the Toronto Stock Exchange. After two quarters, 20 companies graduate to the senior market, which represents an increase of more than 230% compared to last year.

We are extremely proud of these results. They demonstrate our increasing value to our issuers, and the important capital formation role we play in the Canadian market.

Turning to equity trading, volumes on both the Toronto Stock Exchange and the TSX Venture Exchange were down in June 2010 compared to May. We believe that the decrease was largely due to the displaced trading community during the week prior to the G20 meeting, which represents one of the downsides of hosting that event. We are also hearing that volumes are down because of the World Cup effect, but that might be a little bit more difficult to prove. Even so, TSX Venture Exchange continued to post significant gains. On a year-to-date basis, trading volumes on Venture were 57% ahead of the first six months in 2009.

And while trading volume on Toronto Stock Exchange was down somewhat compared to last year, the Exchange did set two records during the quarter. The first was a new transaction record with 1.6 million trades on May 6, 2010, which broke the previous record of 1.5 million trades set in September 2008. The second was a record number of trading orders processed on TSX on May 20, 2010, with almost 101 million orders processed, which surpassed the previous record of 83 million set earlier in May. Our recent technology upgrades have made it possible to easily accommodate these record-breaking trading levels. We believe that our technology investments as well as our recent pricing adjustments are critical factors in maintaining TMX Group's equity trading market share, which has been largely stable since the beginning of the year. As I have said in previous calls, we will continue to make the investments necessary to compete hard for our clients' business.

Montréal Exchange continued its positive momentum through the second quarter. Trading volume was up 32%, and open interest was up 26% for the first six months of 2010. MX also set trading records during the second quarter. The average daily volume in May was 218,846 contracts, which surpassed the previous records set in February 2007. The boards also set an average daily volume record for the second quarter. A new record was also set on natural gas exchange in the quarter. Natural gas volumes in June reached a new record high. Crude volumes are also dramatically compared to 2009.

I will turn now to our initiatives during the quarter. Continuing with NGX, we believe we recently announced the establishment of two new natural gas clearing points. We added the Alliance Canadian receipt location in Canada, and Michigan in the United States. NGX also added two additional trading hubs in the US, bringing the total number there now to 29.

Montréal Exchange launched a new futures contract on Canadian heavy crude oil. Not only does the contract enable MX to position ourselves in an important segment of the crude oil market in Canada, it demonstrates the key strategic linkages among TMX Group business areas, in this case, Montréal Exchange, NGX, and Shorcan Energy. The first contracts were traded last week, and we look forward to further development in this market.

Our derivatives clearing business, CDCC, has been working steadily to develop the infrastructure for central counterparty sources for the Canadian fixed income market. CDCC will deliver the solution to the marketplace in the second half of the year.

In our market data business, all equity marketplaces in Canada are contributing to our information processor products. At the end of June, we also cut the ribbon on our expanded collocation facility. As you can see, we have been delivering on our commitment to provide new products and services to our domestic and international clients. Business development teams in all parts of our diversified company will continue to be very active both in Canada and around the world to attract new clients and add shareholder value. We will also continue to be a constructive force for change in the Canadian regulatory environment.

I will now turn it over to Michael to walk you through the TMX Group financial results for the quarter ended June 30, 2010. Then, we will be happy to take your questions. Thank you. Michael?

Michael Ptasznik

Thanks, Tom; and good morning, everyone. I know many of you have read this morning's press release. So, I will just taking some of the Q2 highlights before Q&A.

We delivered positive results in the quarter, and continue to see strong evidence that our efforts to diversify have benefited our business. Revenue was $142.7 million in Q2 2010, up $4.6 million or 3% compared with $138.1 million for Q2 2009, reflecting increased revenue from issuer services, Canadian derivatives markets trading and clearing, cash markets fixed income trading, and market data. This was partially offset by lower revenue from our US derivatives market trading and cash market equity trading.

Tom highlighted some of the trading records we set during the second quarter, and certainly, we are encouraged by the positive signs we are seeing in some of our key market activity numbers. As Tom also mentioned, on Toronto Stock Exchange, new issuers are coming to market, with 40% more IPOs and six times the number of graduates from TSX Venture Exchange in Q2 2010 compared to Q2 2009. And once again, financing were up on TSX Venture Exchange in the quarter. In terms of dollars raised, new equity financings on TSX Venture exchanged increased by 166%. It strengthened listings market cap and activity to virtually a 13% increase in listings revenue, and importantly, revenue billed was $13.4 million higher in the quarter than revenue reported, and $23.1 million higher for the first six months.

IMX volumes were up 40% over Q2 2009, open interest was up 26% at June 30, 2010 compared to June 30, 2009. Increased volatility in future interest-rate expectations as for trading in the back of CGB contracts, and we have also seen increases in trading and indexed derivatives and ETF options. This increased volatility has also been positive for Shorcan's results, as the activity in Canadian fixed income trading and the Q1 2010 launch of their energy brokerage business has spurred significant growth from last year.

Net income was $47.6 million, or $0.64 per common share for Q2 2010 on a basic and diluted basis compared with net income of $46.9 million or $0.63 per share on a basic and diluted basis for Q2 2009, representing an increase in net income of 2%. The increase in net income was largely due to higher revenue, mainly from listings MX, Shorcan, and market data.

Operating expenses were up 8% in the quarter, from $68.2 million in Q2 2009 to $73.8 million in Q2 2010. This is primarily due to the higher costs related to our technology initiatives, corporate development and marketing costs, as well as increased costs related to short-term performance incentives and commission based compensation. As our revenues for Shorcan's fixed income and energy brokerage operations become more meaningful contributors to total revenue, their commission-based compensation structure will add some variability to the constant benefits line.

We were able to offset some of these higher expenses by reducing headcount from Q2 2009. We will also be moving from our legacy hardware to more efficient platforms and we incurred $600,000 in one-time costs in decommissioning this legacy hardware in the quarter. Sequentially, revenue in Q2 2010 increased over revenue in Q1 2010 due to higher revenue from market data, issuer services, energy trading, Canadian and US derivatives trading, and this was somewhat offset by lower revenue from cash equities trading.

Net income from Q2 2010 decreased over net income from Q1 2010, largely due to the higher expenses as we saw the higher technology, corporate development, and marketing initiatives expenses in this quarter.

Turning to the cash flows, we generated $73.8 million from operating activities in Q2 2010, a 47% increase over Q2 2009. Cash and marketable securities totaled almost $265 million at June 30, 2010, an increase of almost $74 million from December 31, 2009. We currently have $439 of debt, which is financed as less than 2% after tax, and our debt to EBITDA ratio is well under 2:1.

As you know, we filed the shelf prospectus in June. We continue to review our capital structure and are exploring the means to refinance either in whole or in part the debts that became current in the quarter. We are also continuing to explore our corporate development options. We evaluate our cash position and dividend on a regular basis, and this morning, we announced a dividend of $0.38 per common share to be paid on August 27, 2010 to shareholders of record on August 13, 2010.

With that, I would like to turn things back to Paul for the Q&A session.

Paul Malcolmson

Thank you, Michael. In order to give everyone a chance to participate in the Q&A session, we would ask that you do limit yourselves to two questions, and then re-queue if you have additional questions. Shannon, could you please outline the process for the Q&A session?

Question-and-Answer Session

Operator

Certainly. (Operator Instructions). Your first question or comment comes from the line of John Reucassel from BMO Capital Markets. Your line is now open.

John Reucassel – BMO Capital Markets

Tom, just a question, you talked about the CDCC getting ready to deliver solutions to the marketplace in the second quarter, I am sorry, the second half of this year. Could you give us a sense of what the timeline is? You know, you bring the solution to the market, then the market has to look at it, and what products might come first, and are we looking at new revenues probably sometime later 2011, or how should we see this unfold?

Tom Kloet

Well, as you know, the initial product we are going to launch to the marketplace, John, is a repo – principally a solution for clearing repos, fixed income repos in the Canadian market. We are working with, there is an IIC committee that has been formed to work with us as we develop that. We are working with them, we have approved the new rules through the rule-making process at the Montréal Exchange. They are in the process of going through the regulatory approvals. And, you know, we have most of all the software build done. And, you know, we are going to work with the marketplace on developing that solution through the second-half of the year. So, I would expect that it will be a work in progress and we will have a little bit more to report on that after the third quarter in terms of more specific timing, because it will involve, you know, regulatory approvals and working with that committee and it is kind of difficult to predict the timing of all that.

John Reucassel – BMO Capital Markets

Okay, and what about clearing for the equity business on the CDCC, is that something you are still looking at or not looking at, or how should we – how should investors look at that opportunity or lack thereof?

Tom Kloet

Well, it is currently not in our business plan. We are focused on having CDCC moved into the fixed income clearing space. I think we have been cleared of asset priority, and then once we complete the repo solution, we are also concurrently looking at the broader OTC derivates space, because the new regulation that was passed in the United States and that we expect to be similarly adopted by many other companies, I think this is a tremendous opportunity. We are sizing that opportunity right now and preparing, and if we happen to have a terrific asset with a – one of the most recently developed clearing systems in the world was solo clearing. I mean, it is designed to encompass clearing activity that is not traded on our exchanges and that is how the software was written. So I think we have a tremendous asset there and tremendous opportunities for broader OTC derivates clearing opportunity and that is what we will look at first. That said, as I have said before, the marketplace would like us to get into the equity clearing space. We wouldn't dismiss it, but it is not an immediate focus, frankly.

John Reucassel – BMO Capital Markets

Okay, last question, can you give us a sense of what the ELP trading was, the percentage of total volume on the senior exchange? And an update on what were the financial impacts, if any, on the collocation in the quarter or will the full benefit of that be coming in the next quarter?

Tom Kloet

I will let Michael handle both of those questions, John.

Michael Ptasznik

So the ELP trading continued to be around that 15% mark, which is where they have been sitting for a little while, so that has been fairly consistent over the last few months. And with respect to the collocation, we basically cut the revenues toward the end of June, and we do have collocation revenue that exists to clients, but the expansion really is going to hit the second half of this year.

John Reucassel – BMO Capital Markets

Great. Thank you.

Operator

Your next question or comment comes from the line of Graham Riding [ph] from TD Newcrest. Your line is now open.

Graham Riding – TD Newcrest

Hi, gentlemen.

Tom Kloet

Hey, Graham.

Graham Riding – TD Newcrest

How are you doing?

Tom Kloet

Good.

Graham Riding – TD Newcrest

A question with – on the derivatives side, you know, your Montréal volumes were up quite significantly year-over-year, but then there was, I guess, clearly an offset from BOX; and then there was also a fee change that came through, so I just wanted to know is – how do we interpret what is going on there? Is BOX really the main offset as to why your revenue is not tracking with your Montréal Exchange volumes or what is the impact from the fee change?

Tom Kloet

Well, there is a few comments, especially a great question, Graham. Yes, the short answer to the question is, certainly, the reduction in volumes at BOX did impact it on a year-on-year comparison. So comparing the second quarter of 2010 to the second quarter of 2009, that would certainly be the case. That said, one of the things I am most pleased about with the quarter's performance at MX is that I think every product class had an increase in volume quarter on quarter, whether it was a fixed income business, whether it was the equity business, whether it was the equity options business, whether it was the options from EPS. Each one had a volume increase, if I remember right on second quarter 2010 compared to first quarter 2010. That is a real healthy sign, as well as the continued growth in open interest, which as you know, is a key indicator of growth in the derivative business. So I am really happy with that.

But the announcement [ph] is a little bit more complex than that, because we charge, as I guess you know, different rates depending on the product. And, you know, I think you have to look at the product mix a little bit as well. That, coupled with the fact that we did reduce rates on our equity options business, I think effective May 1, Michael can help me with that, but I think it was effective May 1. You know, that had some small impact, but I think the bulk of your comparison is right, but I would suggest add in the product mix comparison as well.

Michael Ptasznik

Yes, this kind of product, there is also some customer mix that will effect it, depending on where the trading is coming from, but at the high level, you are absolutely correct.

Graham Riding – TD Newcrest

Okay, and that is helpful. And then, you know how you have broken out before, like assuming nothing changes with your equity trading fees, you know, we can expect a $15 million to $18 million, as an example, impact with your trading fee cuts. Is there any sort of, I guess, information you can give with these derivative trading fee changes?

Tom Kloet

The option trading fees?

Graham Riding – TD Newcrest

Yes, like how material are they?

Tom Kloet

It is not material.

Graham Riding – TD Newcrest

Okay.

Tom Kloet

Frankly, it is not material enough to our income.

Graham Riding – TD Newcrest

Okay, and then you had mentioned in the past that you would be interested in potential partnerships for BOX, you know, liquidity partners; any update on that front?

Tom Kloet

Well, we are actually making good progress on putting together our potential list of people to talk to, and you know, we are talking to the current shareholders about our plans around that, and I am quite encouraged by that. I am frankly very encouraged by some of the new participants who are signing up for our direct market access to BOX. There is a very encouraging pipeline of new clients, and I think you may have seen that we are gaining back market share, over the last several months. And then finally, a very big event for BOX was the move to the new data center, which positions us very well in a New Jersey data center for our connections to the high-potency trader community and some of the retail brokerage communities at those active participants in the options market. So I am quite encouraged by some of the signs that we are seeing, and to your specific question, we are making progress. We are not anxious just to go out and cut a bad feel, instead, what we want to do is put together something that has long-term beneficial impacts on BOX's competitive position. And the early indications are that that is going to go very well. But we will have more information as that unfolds, frankly.

Graham Riding – TD Newcrest

Okay, that is great. Thanks.

Operator

Your next question or comment comes from the line of Shubha Khan from National Bank Financial. Your line is now open.

Shubha Khan – National Bank Financial

Thanks. Good morning.

Tom Kloet

Good morning.

Shubha Khan – National Bank Financial

So, with respect to the expenses, I think notwithstanding the one-time costs for decommissioning legacy costs, I was wondering, I mean, expenses seem, still seem slightly elevated. Do you expect those to normalize in the coming quarter, both technology-related expenses and those related to marketing?

Michael Ptasznik

So as you said in the past, you know, the expenses will fluctuate depending on some of our corporate initiatives, whether they are marketing initiatives, corporate development initiatives. We are, by doing things like enterprise expansion, the gateway upgrade that happened in the beginning of the year, as well as the collocation, those are going to be adding to the run rate. However, we will be seeing a reduction in the expenses or the fact that we have moved on from that legacy hardware that we provided information in previous calls, which is roughly around $2 million a quarter in reductions that we see for coming off of the old mainframe system. So, you will see that in the results, but again, depending on what happens on any specific orders with respect to our corporate development marketing initiatives, we will see fluctuations related to that.

Shubha Khan – National Bank Financial

Got it.

Tom Kloet

If I can just add one other thing to the numbers aspect of this, maybe a competitive view, we are getting pretty regular client feedback that our technology is a differentiator for us, and that we are doing the improvements we have made in terms of the latency, in terms of the equity expansion, and most recently, with respect to the completion of our collocation facility, you know, on time and within the framework that we told the marketplace we would do it, we are getting very favorable feedback from our client based on that. And I think it is an important factor as we face the competitive environment. So these investment that we made in technology I think are very improved as we face the competitive environment we are in.

And I guess, just one other item to note, and we talked about this in my remarks, is that the, typically, our costs have been almost fully fixed costs, but now, with Shorcan becoming a more meaningful part of the business, obviously with them being an IDB system as their revenue grows, and that is going to have an impact on the compensation line.

Shubha Khan – National Bank Financial

Perfect, that is very helpful. Thank you. The second question I had was related to BOX. Volumes were up, I think 37% sequentially, and you had alluded to the fact that you have been taking share over the last couple of months. I am wondering whether some of that is related to anything that you have been doing, actively been doing down in the U.S. in the options market? So if – could you give us a sense of what that may have been and what may have driven that market share gain?

Tom Kloet

I think I went through that a few minutes ago, one is very sensitive marketing with a CEO that frankly is very market savvy and knowing who the players are; and we are increasing the number of clients who are directly accessing BOX. Two is the move of the data center into a far more strategic location, I believe helps. BOX has made some pricing adjustments of its own that are helping significantly. So I think those will be the three biggest factors, and I am, the signs are encouraging.

Shubha Khan – National Bank Financial

Thank you.

Operator

Your next question or comment comes from the line of Geoff Kwan from RBC Capital Markets. Your line is now open.

Geoff Kwan – RBC Capital Markets

Hi, good morning. The first question I had was just following up on Shubha's question on the expenses on the IT, so the $2 million a quarter, would that suggest then that the absolute dollar amount would be lower than what we observed from the second quarter?

Michael Ptasznik

Yes, as you know, Geoff, I am not going to predict what the number is, we don’t give that type of guidance, we will tell you about some specific items. So, the $2 million will be coming off, but it depends on what, you know, the other investments and other corporate developments and marketing initiatives that we are doing in the quarter. So I can't tell you whether it is going to be up or down, but that is one factor that is going to be coming into play.

Geoff Kwan – RBC Capital Markets

Okay, and in terms of then I guess maybe asking it another way, you had talked about these expenses in terms of transitioning on the technology would be largely occurring in the first half of the year and then see the benefits in the second half. Is that where we are right now in terms of the incremental initial expenses are done, and the second half should see some of the improvements?

Michael Ptasznik

Well, in the end, you will see that we did put some exposure around the expenses around or the capital expenses around the collocation. So I think what we said in there is we spent $7 million of the $10 million on collo. So those obviously are primarily capitalized and mostly express over a ten-year period. So the risk of $3 million to be spent on the collocation facility for this current phase. So that is still not in the run rate, but otherwise, the majority of the expenses for enterprise expansion and the collocation has been built into the run rate.

Geoff Kwan – RBC Capital Markets

Okay, the last question I had was for Tom. Do you see over the longer term continuing operating two trading engines or would you consider at some point migrating into a single trading engine?

Tom Kloet

Well, as we have said in the past, you know, we will look at behind the engines, the actual trade mashing methodology is surprisingly similar between solo and quantum. In fact, it is almost eerie how similar the two systems are when you get behind them. Geoff, I think the reality is that us, like most other Exchanges around the world, will always operate separate instances of the technology, because it impacts latency. But in terms of taking the remaining differences between the two systems and you know, combining them, I think we will look at that as time goes on, as it improves our competitive position, but it is a fact that the secret sauce, if you want to call it that, or the methodology underneath the two systems are very, very similar. But we will not go to a single instance, and I don’t think any Exchange actually would do that, because you would ruin latency.

Geoff Kwan – RBC Capital Markets

Okay. Thank you.

Michael Ptasznik

Sorry, Geoff, if I can just add to Tom's comments, the thing that we talked about when we talked about the integration of MX and TMX at the time was that we had combined the, what we call the elements of the stack, to obtain savings. So what we have been able to do is been able to combine the operation side by bringing the data centers together. And then, over time, we are going to continue to combine other elements of it. So it may not be the full software combination at the end as Tom just described, but there are definitely elements for hardware and operating software that we can continue to get synergies from by combining through the platform. So we are continuing to do that paperwork going forward.

Geoff Kwan – RBC Capital Markets

Okay. Thanks.

Operator

(Operator Instructions). Your next question comes from the line of Ed Ditmire from Macquarie. Your line is now open.

Ed Ditmire – Macquarie

Hi, good morning, guys.

Tom Kloet

Good morning, Ed.

Ed Ditmire – Macquarie

With, you know, the changes in market share, the changes in pricing in the Canadian equity markets, you know, seems to be becoming smaller as the quarters progress, now as we kind of enter two years after the competitive year he really began in Canada. I would imagine uncertainties around that business and around your spending requirements are probably diminishing. Do you think we are getting to a point where, you know, soon you guys will feel more comfortable with giving guidance, especially maybe on things like expenses?

Michael Ptasznik

I don’t know if it is a problem saying it, but our philosophy as an organization going back to when we first became public was not to provide guidance. We do, on specific items, that are material to the organization such as the collo and the enterprise expansion, those types of things, but the philosophy of the organization has been to provide you with as much information as we possibly can for the (inaudible) to you models. And obviously, the predictability on the revenue side will leave the predicting the market trading volumes, et cetera, to you guys. On the expenses, we will give you as much information as we can, but the variability of the rate in the quarterly expenses, we know that, you know, this quarter, there was a couple of items in there such as the tandem write-offs and maybe some other corporate marketing and development initiatives that, you know, changed the numbers from the typical run rate, but, you know, we try to give you as much information as possible, but then, let you guys see where things shake out. There is a lot of information that we publish on a daily basis that a lot of other companies don't publish, such as our trading stats and our financing stats that hopefully will help you guys build the models and we are happy to work with you, you know, as you guys build them.

Ed Ditmire – Macquarie

Okay.

Tom Kloet

And if I can just add, you know, our competition is not limited to the equity trading business. So we operate in that competitive environment in every business we are in. So, I am not as comfortable as maybe your question indicates in terms of the fact that we don’t continue to face competitive dynamics, but I think that is the reality of being in the global exchange business.

Ed Ditmire – Macquarie

Okay, good answer. Thanks, guys.

Operator

Your next question or comment comes from the line of Jeff Fenwick from Cormark Securities. Your line is now open.

Jeff Fenwick – Cormark Securities

Hi, good morning. Just wanted to follow-up, you mentioned briefly in your comments about corporate development activities and I am assuming alluding to M&A. Can you give us any update on whether that is becoming a bigger focus for you over the next year to look at M&A opportunities for growth? And are there any particular aspects of the business where you think you might see some opportunities?

Michael Ptasznik

Well, I will take a shot at it, but the – we have been seeing for a while now that we have been continuing to look at the corporate development opportunities and we are looking to grow the business, obviously both organically, but also looking at the M&A front, and we have, as you know, a strong balance sheet and capacity for those opportunities. Where we have been focused is, as you can tell, over the first part of our evolution, we looked at really spreading out across Canada, across some different asset classes. So we have gone from equity to junior equities, fixed income, energy products, and obviously, derivatives being the most significant one that we did with when we combined with the MX in 2008. So that really was the focus for the first, I guess, part of our life as a public company. And now, I think what we are looking at is extending our business up and down, what we have called the value chain. So we are looking at more opportunities, whether it be extensions in our market data business, or whether it be more in the back office side of things to really expand in the areas in which we have touch points with our customers. And we are looking at numerous opportunities, so it is very active, but we obviously are very focused on making sure that the things that we look at have both the strategic criteria for the business and also meets the financial criteria. So, there is a lot of interesting things out there, but we obviously don't want to stretch too far to achieve them, because we want to make sure that we return good shareholder value.

Tom Kloet

So, yes, if I need to say that, I think Michael has hit the nail on the head, I would maybe use a slightly different vernacular, but I would say that we will continue to look in the information business, or extension of the data business, you know, as we continue to explore ways to convert data in the information. And then the second thing would be, Michael referred to the post-trade area, and I think that is a very interesting area for us to look at too. But our efforts won't be exclusive to those two. We will look at other interesting things, and frankly, there are interesting things out there for us, but we will do so with a very disciplined approach.

Jeff Fenwick – Cormark Securities

And you would be willing to look both domestically and outside of Canada?

Tom Kloet

Yes. Yes, and yes.

Jeff Fenwick – Cormark Securities

Okay, and second question, you are continuing to accumulate some cash on your balance sheet there, any thoughts about how you would deploy it? I guess M&A is certainly one area, but what about extra share buybacks or something along those lines?

Michael Ptasznik

M&A is, as we said before, the way we look at our cash is obviously, we look at first for investments that we can continue to grow the business. After that, we will look at opportunities to either return the cash to shareholders, whether it be through increase in dividends or through a buyback of some sort. So we do continue to evaluate that on a regular basis.

Jeff Fenwick – Cormark Securities

Okay, that is it for me. Thank you.

Operator

As there are no further questions at this time, I would like to turn the call back over to Mr. Paul Malcolmson.

Paul Malcolmson

Very well. Thank you, Shannon; and thank you, everyone for listening today. The contact information for media as well as for investor relations is in today's press release, and we would be happy to take any further questions. Once again, thank you, and have a great day.

Operator

This concludes today's conference call. You may now disconnect.

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